Corporate Law Newsletter – The Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 : Dec 2023
Introduction
The Ministry of Corporate Affairs, vide notification dated October 27, 2023, has introduced amendments to the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (“Amendment Rules”). The Amendment Rules have come into effect from October 27, 2023. The amendments introduced by the aforesaid notification are as follows:
A. Dematerialization of share warrants by public companies
The Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Rules”) require the promoters of every public company making a public offer of convertible securities to hold such securities only in dematerialized form.
By virtue of the Amendment Rules, every public company which issued share warrants prior to the commencement of the Companies Act, 2013 (“Act”) and not converted the same into shares shall:
| Statutory provision | Actions to be undertaken | Statutory filing | Timeline |
| Rule 9 (2)(a) | Inform the registrar of companies (“ROC”) about the details of such share warrants. | Form PAS-7 (details of pending share warrants). | 3 (three) months from commencement of the Amendment Rules. |
| Rule 9 (2)(b) | Place a notice for the bearers of share warrants in Form PAS-8 (notice for bearers of pending share warrants) requiring the bearers of the share warrants to surrender such warrants to the company and get the shares dematerialized in their account. | – | 6 (six) months from commencement of the Amendment Rules. |
Further, in case any bearer of the share warrant does not surrender the share warrants within the period referred to above, the company shall convert such share warrants into dematerialized form and transfer the same to the Investor Education and Protection Fund established under section 125 of the Act.
B. Dematerialization of securities by private companies
The Amendment Rules now require every private company, which as on the last day of a financial year, ending on or after March 31, 2023, is not a small company as per audited financial statements for such financial year (“Private Companies”), to comply with the provisions of Rule 9B of the Amendment Rules, within 18 (eighteen) months of the closure of such financial year (“Compliance Date”).
Thereafter, the Private Companies shall issue the securities only in dematerialized form and facilitate dematerialization of all its securities, in accordance with provisions of the Depositories Act, 1996 (“Depositories Act”) and regulations made thereunder.
The Private Companies making any offer for the issue of any securities or buyback of securities or issue of bonus shares or rights offer, after the Compliance Date, shall ensure that before making such offer, the entire holding of securities of its promoters, directors, key managerial personnel has been dematerialized in accordance with the provisions of the Depositories Act and regulations made thereunder.
Further, every holder of securities of the Private Companies who intend to transfer or subscribe to such securities on or after the Compliance Date shall get such securities dematerialized before the transfer.
